Tuesday, March 31, 2009

European Buyer's Remorse on Obama

In the election The Economist of London endorsed Barack Obama. It's now having some serious buyer's remorse. Here below are excerpts (in boldface) its recent edition ("Learning the Hard Way") about how it sees the Obama Administration's performance. I hope you'll pass this along to other bloggers and online activists. It shows Obama's failures as seen from a European perspective.

I've been asking everyone to turn the heat way up on Barack H. Obama, who turns out to be little more than a slick talker in a $3,500 suit. He's no Sarah Palin -- and yes, she could beat him at basketball also. (Ask budding star Willow Palin, who still can't beat her mother.)

Mar 26th 2009
From The Economist print edition

Barack Obama may at last be getting a grip. But he still needs to show more leadership, at home and abroad

"HILLARY CLINTON'S most effective quip, in her long struggle with Barack Obama for the Democratic nomination last year, was that the Oval Office is no place for on-the-job training. It went to the heart of the nagging worry about the silver-tongued young senator from Illinois: that he lacked even the slightest executive experience, and that in his brief career he had never really stood up to powerful interests, whether in his home city of Chicago or in the wider world.

"Might Mrs Clinton have been right about her foe? Polls show that independent voters again prefer Republicans to Democrats, a startling reversal of fortune in just a few weeks . . . Mr Obama has seemed curiously feeble.

Empty posts, weak policies

There are two main reasons for this. The first is Mr Obama's failure to grapple as fast and as single-mindedly with the economy as he should have done. His stimulus package, though huge, was subcontracted to Congress, which did a mediocre job: . . .

"His budget, though in some ways more honest than his predecessor's, is wildly optimistic. The failure to staff the Treasury is a shocking illustration of administrative drift. There are 23 slots at the department that need confirmation by the Senate, and only two have been filled .. . Getting the Treasury team in place ought to have been his first priority.

"Second, Mr Obama has mishandled his relations with both sides in Congress. Though he campaigned as a centrist and promised an era of post-partisan government, that's not how he has behaved.

"His stimulus bill . . . if Mr Obama had done a better job of selling his package, and had worked harder at making sure that Republicans were included in drafting it, they would have found it more difficult to oppose his plans.If Mr Obama cannot work with the Republicans, he needs to be certain that he controls his own party.

"Unfortunately, he seems unable to. . . . The Democrats . . . have stuffed his stimulus package and his appropriations bill with pork, even though this damages him and his party in the eyes of the electorate. Worst of all, he is letting them get away with it.

Lead, dammit

"But the [Geithner banking] plan at least demonstrates the administration's acceptance that it must work with the bankers, instead of riding the wave of popular opinion against them, if it is to repair America's economy.

"[On overseas "leadership"]. . . Take the G20 meeting in London, to which he will head at the end of next week. The most important task for this would-be institution is to set itself firmly against protectionism at a time when most of its members are engaged in a game of creeping beggar-thy-neighbour. [But they point out, Obama is completely in bed with protectionist unions.]"

Link follows: http://www.google.com/search?hl=en&ie=ISO-8859-1&q=%22The++Economist%22+%2B+%22Learning+the+Hard+Way%22&btnG=Google+Search&aq=f&oq=

Monday, March 30, 2009

U.S-China: Deal with Devil

Yes, many factors led to the global financial crisis, but a major element was the U.S. and China striking "a deal with the devil." In the 1990s and the current century, the two countries cane up with this agreement: The U.S. would buy massive amounts of goods from China . . . in exchange for China buying massive amounts of U.S. debt. In a sense, China, a large net exporter, would provide much of the money for the U.S., a large net importer, to buy the Asian products. Great deal, right? Nope.

Unlike Bernie Madoff's activities, the U.S.-China deal was not a pure "Ponzi Scheme," one where old investors are paid off by new investors' cash. However, there is a major similarity: in both cases, the assumption was that market values -- of stocks, bonds, and other properties -- would continue rising. In a rosy economy, Madoff could "cover" his obligations -- and so could the U.S. and China.

But what if the global economy went into a downturn? In the case of the U.S., we would no longer be able to purchase goods at anything like former levels. (In the case of Japan, another important buyer of U.S. debt, their exports have gone down by half.) In the case of China, it would be increasingly less likely to want to buy large quantities of U.S. debt.

"Those were the days, my friend, we thought they'd never end." Well, they did end. The assumption that good times would remain forever was exposed as a fantasy.

As you'll see on my other blog, the Obama Administration's answer to financial problems caused by over-borrowing, over-spending, and over-lending is to encourage . . . (much) more borrowing, (a great deal) more spending, and (massively) more lending. In other words, if you swallow some arsenic, the solution is to swallow a jug-full of the same poison.

On the other blog, I note that Gov. Palin understands exactly the folly of Obama's economic policies. Obama is behaving a great deal like Bernie Madoff. If he can hold off the calamity long enough to get re-elected, then he has succeeded.

But his success will the nation's -- and the world's -- failure. He's taking us out of recession and leading us into a full-fledged Depression.

Sunday, March 29, 2009

Financial Collapse was No Surprise

Friends, you may already have heard, but they just informed me that I won't be on BBC Radio today. It will be next week (time to be determined). Thanks for your interest. I sent out the following. [Note: Later today I'll write on my other blog about Hillary Clinton supporters who have moved to support Sarah Palin as America's first female President.]

Oops, the BBC just called, and I will be on NEXT WEEK (and not today). I gave them the name of a British contact, Brad Setser, who is the man, along with American expert Nouriel Roubini, predicted exactly what would happen in the financial crisis.

That prediction was made (in a beautifully written article) in 2005 in the magazine Foreign Affairs. I really urge everyone to read the piece, which you can find at: http://www.foreignaffairs.com/articles/60840/brad-setser-et-al/how-scary-is-the-deficitIf you don't have the time, here's the Wikipedia short form of the Setser-Roubini piece. They are brilliant, but not obnoxiously so, and their prediction outlines everything that came to pass:

"If the US does not take policy steps [in 2005] to reduce its need for external financing [i.e., from foreign central banks, particularly China's] before it exhausts the world's central banks willingness to keep adding to their dollar reserves - and if the rest of the world does not take steps to reduce its dependence on an unsustainable expansion in US domestic demand to support its own growth - the risk of a hard landing for the US and global economy will grow. The basic outlines of a hard landing are easy to envision: a sharp fall in the value of the US dollar, a rapid increase in US long-term interest rates and a sharp fall in the price of a range of risk assets including equities and housing. The asset price adjustment would lead to a severe slowdown in the US, and the fall in US imports associated with the US slowdown and the dollar's fall would lead to a global severe economic slowdown, if not an outright recession." [summarized from Messrs. Setser and Roubini, Foreign Affairs, 2005, Wikipedia summary]

The financial problem the world faces was caused by over-borrowing, over-lending, and over-spending. The Obama/Geithner solution is to borrow more, to have foreign central banks increase their lending, and for government to accelerate its own spending. If that sounds as if we're trying to solve the problem by doing more of what caused it, well, you've hit the nail on the head.

Additionally, we're bailing out failure and submerging success. Just call it "The Obama Depression." He's repeating Roosevelt's mistakes, while remaining blind to FDR's successes.

Saturday, March 28, 2009

Obama Lied, America Died

Specifically, Obama lied about being "post-partisan" -- he has the most partisan government in American history -- and about being "post-racial" -- he got 96% of the African-American vote in the November election. Those voters saw Obama not as a man but as nothing more than a "Black man."

He also lied about going "line-by-line" to eradicate unnecessary spending. His Stimulus bill contained more than 8,000 earmarks -- pet projects inserted by Representatives and Senators trying to buy votes with unnecessary handouts.

Moreover, he spoke falsely about his commitment to transparency, which he claimed would allow Americans four days to read proposed legislation. That didn't happen with the Stimulus Bill, the largest spending measure in our nation's history.

Yes, the America we all knew and loved has died --or, at least, "gone on life support." The America of freedom, tolerance/respect, and opportunity has now become unrecognizable. The U. S. House has turned into a lynch mob led by America's own version of Dickens' Madame De Farge. The Senate has become a collection of spineless people waving rubber stamps.

People have been asked me about my appearance on BBC Radio from London tomorrow (Sunday). It will be sometime between 1 p.m. (ET) and 1:30 p.m. The BBC has asked me to focus on Obama and the G20 Economic Summit meeting next week in London. Later today (Saturday), I'll put down (below) some of my thoughts on what I might say. (More to follow)

If you'd like to tune it, go to the following: http://www.bbc.co.uk/radio4/schedule/2009/03/29/glance/ Click on the "listen" button up in the right corner. Hope you tune in!

Friday, March 27, 2009

Why GWB's Presidency Failed

. . . and why the Palin presidency doesn't have to fail. Below: I don't want Sarah Palin in 2020 to be complaining that "Soros and the media ruined my presidency." Instead, I want her -- about 2020, at the end of her second term -- saying, "I crushed George Soros, Nancy Pelosi, Harry Reid and all those associated with them."

GWB was and is a good man, an American patriot. His wife was one of the greatest of First Ladies.

But he was a lousy salesman. (Today, Obama did a lousy job of "selling" the Afghan War, because he failed to make it personally meaningful to Americans.) Republican Presidents have a very small margin of error, because of media hostility, and somehow I never got the impression that GWB was having searching discussions of how best to "sell" the war or his handling of Katrina.

On somebody like Harriet Miers, the question is not whether she's an outstanding person, but rather: "How do I sell her as a credible nominee for the Supreme Court?' Yes, some conservatives stabbed her -- and GWB -- in the back, but that's the world we live in.

Compare the nomination of John Roberts, a bullet-proof candidate, versus that of Harriet, who never had a chance. The Gonzalez appointment turned out to be a disaster. Yes, he was loyal, but he wasn't much more than that.

He needed people around him who would say: "Mr. President, NO! It won't work." He didn't have such people.

Frankly, GWB's desire to have "friendly" relations with the White House Press corps showed a truly amazing naivete. Those people inhabit a culture that sees Bush's views and his religious faith as toxic.

His little "teasing" comments to journalists were seen as embarrassing and phony. They are not his friends; they will never be his friends.

Does he understand that? No, but Sarah Palin does.

Yes, Soros types and the Dems did everything they could to undermine GWB's presidency. What was his plan for counteracting that? Potentially, the POTUS is a thousand times more powerful than George Soros. It didn't work out that way. Soros lied -- and [the] Bush [presiency] died.

I don't want Sarah Palin in 2020 to be complaining that "Soros, Pelosi, Reid, and the media ruined my presidency." Instead, I want her saying, "I crushed Soros and all those associated with him and his kind." As Gen. MacArthur said, "There is no substitute for victory."

Wednesday, March 25, 2009

Rage and Action: Tea Parties

As Jacquerie of WamToday (http://wam08.org/) said, "Rage without action is pointless." If the Obama Administration's massive bailouts and "Stimulus" payoffs to special interests enrage you -- as they should -- then you must act. About 5 p.m. (EDT) today (Wednesday), I'll have a list of actions you can take in regard to the Tea Parties that will occur in many American cities on April 15.

We can't allow the Tea Parties -- the Second American Revolution -- to be one-and-done events. They must be a beginning -- and not an end. As the old saying goes, "Don't just get mad; instead, get even.

Eleven Actions for Your Local "Tea Party"
1. Contact as many family, friends, and political allies as possible and ask them to go as a group to the local Tea Party – tell them exactly where and when it will be, and offer transportation if you can;
2. Promote the event widely by calling into talk radio, sending letters-to-the-editors of local papers, and notifying local political organizations;
3. Take a half-day’s vacation (if necessary) and ask that sympathetic co-workers do the same;
4. Invite local political and community leaders (although they shouldn’t dominate the event, which should be a true grassroots undertaking);
5. Dress up to make the event as festive as possible – perhaps an Uncle Sam (or Aunt Sam) outfit, or wearing a barrel, or donning a “Lady Liberty” hat;
6. Make up (several) handmade signs, which will capture the attention of the local media;
7. Bring your children if possible and have them carry age-appropriate signs (such as the one that said, “Keep your hands off my piggy bank”);
8. Have card tables and sign-up sheets where people can put their names, addresses, and e-mail addresses, so it will be easier to build crowds for future actions;
9. Enable people to sign up to support their favorite pro-Tea-Party candidates (e.g., Gov. Sarah Palin);
10. Make sure as many people as possible can speak at the event by keeping remarks short and to the point (two-three minutes maximum);
11. Acquaint the people with organizations they can join, such as: TeamSarah.org, Wam08.org, Americac2C.org, and others.
Overall, make the tea party fun, productive, and the foundation for future actions.

Tuesday, March 24, 2009

Meditation: Obama's Trashing of America

Let's see: Obama's crowd trashing the National Mall area, Obama's trashing the Cabinet by appointing tax cheats and other lowlifes, and Obama trashing Sarah Palin (by calling her a "pig" -- see the column below.) Was the crowd that left the mess below the same one roaring its approval of Obam's stirring words about the need for environmental protection?

The "shining city up on a hill" turning rapidly into Obama-Land

Obama looks out at middle-America, such as those of us in western Pennsylvania (who voted for McCain-Palin), and he doesn't like what he sees. We're the ones he described as "clinging" to our guns, our religion, and our ethnocentrism. We're the ones Obama's ally, Jack Murtha, described as "racists" and "rednecks." When it comes to people like us, no amount of verbal trashing is seen as excessive.

Talk-show-hostess Tammy Bruce got an inbox-full of hate mail for calling Obama "trash." Tammy has a bad habit of telling the truth -- about the murderous O. J. Simpson, about the woman-hating Democratic Party, and about the "Garbage Man in Chief," Barack Hussein Obama. FDR gave us the New Deal; JFK gave us the New Frontier; apparently, Obama is giving us the New Landfill.

As a guest ("Eric") said this morning on FOX, "You can't pour perfume on a skunk." Yes, the poet was right when he said, "A rose by any other name would smell as sweet," but as the poet didn't observe, "A bag of trash by any other name would smell as foul."

Of course, Obama and his "lovely" wife don't see themselves as trash. Instead, they look in the mirror (a lot) and see "beautiful people," the attractive, the rich, and the powerful. The gaze out at American and see "The Great Unwashed," the people to whom they'll throw scraps in the form of the Stimulus Package. As for the individuals they see as particularly unbeautiful, such as the people in Special Olympics, they're little more than the butt of jokes. The unborn? Cast them out with the rest of the . . . trash.

If Obama continues as he has, "America the Beautiful" will turn into "America, the Kingdom of Garbage," the place you see above in the graphic. Change? Yes. But change we will experience with disbelief . . . and a growing sense of hopelessness.

Sunday, March 22, 2009

Obama Called Sarah Palin "Pig"

Someone questioned my claim that Barack Hussein Obama had called Sarah Heath Palin "a pig." I cite two news outlets below -- I could have cited 50 -- who believe Obama was referring to Gov. Palin when he made his "you can put lipstick on a pig" comment. (Google: "Barack Obama" + "lipstick on a pig" to see exactly who was the target of his reference.)

Obama sizing up the effectiveness of his slurs against Sarah Palin

When Obama made the statement, no person in America was more associated with "lipstick" than Gov. Palin. In the same way, when Obama was speaking about primary opponent Hilary Clinton and made an obscene gesture with his middle finger, he wasn't merely exercising his digit.

How did Obama's audience react when he made the lipstick=pig reference? According to a NY Post reporter in attendance: "Many in the Obama crowd leaped to their feet in delight - apparently taking the 'pig' comment as a direct slam at Palin."

How was the slur interpreted overseas? The Telegraph in the U.K. had the following headline: "Barack Obama's 'lipstick on a pig' remark prompted by Sarah Palin?" [See: http://www.telegraph.co.uk/news/worldnews/northamerica/usa/barackobama/2779438/Barack-Obamas-lipstick-on-a-pig-remark-prompted-by-Sarah-Palin.html

The Telegraph added, "Perhaps Barack Obama's "lipstick on a pig" remark tumbled out of his mouth prompted by Sarah Palin's own remark about lipstick distinguishing a hockey mom from a pit-bull."

As illustrated by his comments and gestures in regard to both Hillary Clinton and Sarah Palin, Obama is a certifiable sleazebag. Maybe it comes from being a long-time Chicago politician and a lifelong misogynist.

Is Obama the worst President? He's off to a "good start." Is he the sleaziest? No contest. He might end up making Richard Nixon look like George Washington.

Foollowing is the NY Post story on Obama's remark and how his supporters interpreted it.
By GEOFF EARLE, Post Correspondent, Sept. 9, 2008

WASHINGTON - Barack Obama stuck his foot in his mouth today when he said "you can put lipstick on a pig, but it's still a pig" - which the angry McCain campaign immediately charged was an out-of-bounds attack on running mate Sarah Palin.

Obama delivered the line while campaigning in Lebanon, Va., tearing into his rivals for not representing real change.

"You know, you can put lipstick on a pig," Obama said, "but it's still a pig."

He added, "You can wrap an old fish in a piece of paper called 'change.' It's still gonna stink after eight years."

Many in the Obama crowd leaped to their feet in delight - apparently taking the "pig" comment as a direct slam at Palin.

One of her most memorable lines during her vice-presidential acceptance speech at the GOP convention last week was the ad lib: "What's the difference between a hockey mom and a pit bull? Lipstick" - which drew huge cheers from the GOP faithful.

Former Massachusetts Gov. Jane Swift, speaking on behalf of the McCain campaign, quickly called on Obama to apologize.

"It's disgraceful. Sen. Obama owes Gov. Palin an apology," Swift said.

"This is just the latest in a series of comments that females like me will find offensive . . . There's only one woman in the race. It's hard to think this was directed at anybody other than Gov. Palin."

Obama's campaign spokesman insisted he wasn't referring to Palin with the line, calling it an old expression. [Yeah, sure, right.]

The Obama camp has struggled with how to handle Palin since GOP nominee John McCain made the surprising pick for his ticket. Palin gave the McCain campaign new energy, evidenced by a jump in the polls, a surge in volunteers, and big crowds.

Recent polls show the race to be a dead heat or McCain with a slight lead, while the Republicans have gained among white women and independents since the Palin pick.

But after Obama focused his attacks on McCain, in recent days he and running mate Joe Biden have been ratcheting up their direct hits on Palin.

Obama has drawn laughs at his rallies by describing her as a "moose shooter," even as he assures his audience he is complimenting her for her background and accomplishments.

In Farmington Hills, Mich., a crowd booed on Monday when Obama first mentioned Palin's name and laughed when he said she had a compelling biography.

Saturday, March 21, 2009

Obama, Pelos, Reid: Wealth Destroyers

As soon as investors and job creators learned Obama would become President and the Democrats control Congress, a massive hemmorhaging of Americna wealth began. If you really want to know who's undermining the American economy -- and why bailouts don't work, read on:

Time to Undo the Rescue?

Dear "Congressional Wealth Destruction Followers",

President Obama recently delivered a speech where he identified the housing problem as one of foreclosures, citing a study that foreclosure signs depress prices by 9%. This is a lot like saying thermometers cause fevers.

To deal with this symptom, Congress is promising up to 9,000,000 mortgage defaulting homeowners relief from foreclosure under a new program H.R. 1106. The legislation is being driven through Congress by Speaker Pelosi and Senate Majority Leader Reid, whose two states account for one third of all mortgage defaults of the 50 states. The legislation has many facets, but its main points consist of giving taxpayer funds to borrowers and mortgage servicers and prospectively redistributing bank and bondholder collateral to borrowers.

On the positive incentive side, the mortgage servicer gets a new added fee for the modification of the loan and a legal safe harbor for effecting a write down of the collateral, and the homeowner may get various forms of debt relief, including a lower principal amount, a lower interest rate, and a bonus for doing what is in their self interest anyway. In concept, it is akin to paying kids to do their homework, as if gaining knowledge to compete and stay alive in a flat world not incentive enough.

On the negative incentive side, the bank or bondholder is now subject to new law allowing a federal bankruptcy judge unilateral authority to write down the amount of principal on a mortgage in a consumer bankruptcy. The plan promises up to $75 billion in relief but potentially transfers several hundred billion dollars in collateral to defaulting borrowers.

Milton Friedman once said that legislation should be judged not on its intentions, but on its results. As pointed out in an article by Caroline Baum the recent mortgage relief programs were introduced by the Bush administration with great fanfare and few results. The plan to save 240,000 sub-prime mortgage holders called FHASecure was actually only used by only 4,000 borrowers. The more recent HOPE for Homeowners was supposed to help 400,000 homeowners, but was used by only 25.

H.R.1106 may help a few more borrowers, but not likely in the fashion sold to the American public, and at a cost of dramatically changing the rules. Its overall impact will no doubt be bad. The official plan is that up to 9,000,000 newly defaulting mortgage borrowers will refinance applying guidelines that were popular before the government forced banks to increase loans to unqualified borrowers. Some will be able to refinance at lower interest rates if the mortgage is 105% or less than the value of the house. Others will be able to refinance using only 31% of their income to service debt while the government buys down interest payments.

The plan excludes many borrowers. It does not provide payouts for defaulters who (A) borrowed privately (i.e., not the government darling Fannie Mae or Freddie Mac loans); (B) borrowed over $729,000 essentially in New York or California, or $417,000 in most other states; (C) refinanced; (D) don't have a steady enough income to qualify under the new 31% guideline, or, most important, (E) lied about or exaggerated any part of their original application.

According to a 2007 Fitch study, 45 out of 45 randomly selected mortgage applications in a typical loan pool were found to have engaged in fraud in the inducement to lend.

There are many problems with this plan. FDIC head Sheila Bair has acknowledged that the government cannot effectively do forensic analysis. Moreover, it is highly unlikely that many borrowers, already defaulted, will submit to go under an IRS audit like microscope while the government conducts a forensic analysis of their past mortgage applications. Because of this, relatively few borrowers will likely qualify or voluntarily use the official plan.

However, the change in the bankruptcy law completely changes the negotiating dynamic between all borrowers and all lenders, whether or not the government incentives are available. Up until now, banks and bondholders could foreclose without forcing borrowers into bankruptcy. Even so, in states like Florida where foreclosures are rampant, the foreclosure process is taking over a year from the day of the first 30 day default to the actual foreclosure sale. During that entire time the defaulted borrower can be living in the house free of charge and without paying down the mortgage.

It is not difficult to envision a scenario where this situation is exacerbated by H.R. 1106 and the corresponding proposed changes in the bankruptcy laws. By offering a fundamental right to renegotiate the principal of a primary home mortgage, the law could significantly lengthen the time of the property stays in the hands of the defaulting borrower.

And who is to say that the costs of filing bankruptcy won't come down? In fact, by lengthening the procedural time of bankruptcy and foreclosure, the change could be seen as affecting a property seizure under the Constitution, and a denial of due process, since, under H.R.1106, every consumer would have the right to go through bankruptcy to determine their new/lower mortgage principal and interest before a foreclosure could even take place.

Now consider that we are told there are 9,000,000 homeowners in default, 368 federal bankruptcy judges, and that a typical consumer bankruptcy can take up to five court days. This gives each judge the capacity to fully try about 50 individual cases a year, or a total present national capacity of 18,400 cases a year.

Last year 1,000,000 bankruptcies were filed, and this year 1,400,000 are expected, absent any changes in the law. But most of these cases are cleared quickly because the rules are well established and outcomes are predictable, and consumers are using Chapter 7 for liquidation.

With bankruptcy converted from a disgrace to a privilege, if even a modest portion of defaulters choose to file for a Chapter 13 bankruptcy and insist on a trial, the old expectations are gone. This will happen more if the costs of filing for such a bankruptcy are less than the additional costs of meeting all monthly obligations without relief from creditors.

Just guessing, the backlog for clearing the bankruptcies will likely significantly lengthen as the stigma of changing a contract falls away and more people are upended. The furor over the AIG executive payments has come out as, the government should have the right to retroactively change contracts. Surely, beleaguered consumers will embrace the government's amoral example.

Many defaulters are now looking at housing as a trading asset, and contemplating walking away if the debt exceeds the current value. 20% of houses meet this walk away threshold and the number is rising as housing prices continue to fall. In addition, the availability of credit card debt is imploding as FICO scores plunge and credit lines are withdrawn (in part because of falling housing prices), setting up a vicious cycle of credit card line reduction impacting the desperation house sale in a negative feedback loop.

As recently pointed out by Meredith Whitney in the Wall Street Journal, banks are reducing $ 5 trillion in credit card lines to perhaps as little as $2.3 trillion by the end of 2010, with the result that for many consumers almost every new credit payment simply reduces the credit line, and does not create any new availability of credit.
So once a family finds itself underwater on its mortgage, and at its full credit card limits, the issue becomes which bill should it pay and when. Once upon a time the mortgage was among the first bills to be paid. But if the foreclosure docket is crowded, and a family may be able to live for a year without paying out any cash to the bank, defaulting becomes a more attractive option. Under H.R. 1106, that year could easily stretch out further, disincentivizing any deals with the bank.

As more and more families rationally conclude that bankruptcy is a superior option, discretionary defaults are starting to soar. These are defaults where mortgages could be paid first if desired, but strategically defaulted. Call it the Thelma & Louise approach to borrowing. And then there is the chance to re-default, as many do. Call it The Nightmare on Elm Street: Part 2.

Private banks and investors will respond by offering mortgage terms more similar to credit card loans for new mortgages: much higher interest rates, much bigger down payments, shorter terms, more hair triggers. This will shut the door on the homeownership dream for many of our children and depress the value of real estate today. Call it the Pawnbroker approach to lending privately.

So the government could soon be the only game in town for conventional mortgages with traditional terms. Call it the Godfather approach to government backed loans. They were all great movies, but they make for bad policy.

Finally, one cannot over estimate the impact of the moral injustice of imposing on the large majority of homeowners who have struggled in a worsening economy to meet their obligations, only to find that they will have to pay higher taxes to enable less prudent borrowers to receive a government bailout while they are forced to sacrifice in the face of a slowing economy, a hemorrhaging housing market, a complete rule change, and the unfairness of calling on thrifty states to bailout profligate ones.

Starting with the President's number of 9,000,000 defaulters, one can easily envision a scenario of unintended consequences where an additional 5,000,000 or more homeowners default, many using the change in the bankruptcy laws to buy more time. In the game of musical chairs, it is best to move first. H.R. 1106 has opened Pandora's box by assuming people will not change their behavior.

Last year, over $11 trillion in American wealth was destroyed, the bulk of it by imprudent government action. This year, the government is outdoing itself. With one hand, it is shoveling money into banks; with the other hand, it is undermining the securities that often compose a big part of the banks' capital and implementing policies that ultimately hurt housing's value. And, while Congress may fancy itself to be Shiva, creating with 500 hands and destroying with 500 hands, it's not what they were hired to do.


Eric T. Singer
President Congressional Effect Management
420 Lexington AvenueSuite 601 New York, NY 10170
Ph: 646.307.4180
Assistant: 646.307.4183

Friday, March 20, 2009


"I swear The One [Obama] knew what he was saying [about Special Olympics] and that it was a slam on Palin." (My friend Cindy's "take")

We need to recognize -- and to communicate to others -- that Obama and those around him are slimeballs, whose endless gaffes and smears are part of their nature. Many of you might remember his offensive statement about Nancy Reagan -- after which, as with the Special Olympics people -- he called to "apologize." In the campaign, he clearly referred to Gov. Palin as a "pig" -- and didn't apologize.

How do elitists like Obama look at the children and young adults in Special Olympics? With contempt, of course. The chances of Michelle Obama ever giving birth to a Down Syndrome child are something less than zero. The embryo would have been aborted without question and thrown out with hospital garbage. To the Obamas and their admirers children who are less than perfect have no right to intrude on their lives.

The Obamas are what the media call "beautiful people." Anybody who is unbeautiful is someone they avoid. People who are handicapped -- or have handicapped children -- are butts of jokes and derision..

Frankly, someone like Sarah Palin and her family -- or like the people reading this -- are incomprehensible to the Obamas. They hate the Palins because they stand for something -- rather than self-absorption. Sarah talks about the need for leaders to have a "servant's heart." To the Obamas, a servant is someone who takes care of their dirty laundry.

How should we react to the narcissistic Obama and his malicious? Give them no quarter. By doing what they do and being who they are they diminish the value of life. Like their admirer John Edwards, they suffer from chronic narcissism and egotism.

[Note: On Sunday, I'll write about solutions to America's education -- and explain why Obama will do no better on education than Bill Clinton did.]


Jacquerie of WAMToday discussed the need for us to go beyond rage and replace it with focus; she also talked about the Obama Campaign's ability to deflect us from the real issues and have us chase after bogus matters (Rush Limbaugh, the AIG bonuses, NCAA basketball, the White House dog, the White House bowling alley, and the like).

Finally, she stressed the need for us concentrate on issues where we can win. There are issues where our goals might be noble (e.g., the birth certificate controversy) but which we cannot win -- will not win. Remember, Obama wants us to joust with windmills. He wants us to spend tens of thousands of hours -- and hundreds of thousands of dollars -- on matters that lead nowhere.

Of course, it's not always possible to know in advance precisely what's winnable. For example, for various reasons it has become nearly impossible for Obama and Congress to pass additional "bail out" money for financial institutions, most of them big contributors to Obama, Dodd, and other political sleazebags.

One thing we need to avoid is becoming obsessed with single issues -- any single issues -- when backing candidates. Of course, Obama benefits from such obsessions, because it's part of their tried-and-true "divide and conquer" stategy. We want House and Senate members who believe in the Constitution and in traditional American values. If they disagree with us on one or two issues, that's almost irrelevant.

Yesterday, 87 Republican House members and a handful of Democrats voted against the punitive taxation of AIG bonuses. They did so not because they were pandering to angry constituents or because they favored the bonuses. They did so because they knew "ex post facto" laws are prohibited by the Constitution. In other words, we can't be punished by legislation enacted to make a previous act illegal.

If you read Amity Shlaes wonderful book The Forgotten Man, you'll see that Roosevelt's bad side was to enact ex post facto laws. He then prosecuted men, including Andrew Mellon, for legal tax "loopholes" they have used in prior years. If we don't have equal treatment under the laws, we have nothing.

On AIG, I talked at length yesterday with my friend TC, an AIG employee. She is not involved in any way with the credit default swaps that caused all of the company's problems. She was eligible for a performance bonus in her unit, but because of the company's bottom line financial situation she is not receiving any bonus money. She had planned on getting it, but now she isn't. Her situation is much more the norm at AIG than anyone imagines.

Did she earn her bonus? Yes. Is she getting it? No. And there are many, many people like her at AIG. It's basically a sales business, and bonuses are really a form of commissions. Of course, when the overall company is bleeding red ink, good people suffer because of the actions of a few (perhaps a dozen) bad people.

To reiterate: Almost all of AIG's operations in the more traditional insurance business were profitable in 2008, although one operation was horrendously unprofitable, which of course drove down the entire organization's profit performance.

Gee, why isn't the media explaining this the way I (and TC) have? Because the media, aside from FOX Business News and a few others, is clueless when it come to financial matters. They're much better at demonizing than they are at explaining.

Wednesday, March 18, 2009

John Fund: America's Destruction

"The government, in a desperate attempt to avoid political pain caused by its own foolish economic mistakes and lax oversight, has poured billions into bankrupt companies. Then when those companies pass out bonuses they claim are necessary to retain qualified workers, the political firestorm leads government officials to propose tax rates that would make even British socialists of a half century ago blush."
"We are slipping into debates that have nothing to do with a free economy and everything to do with the government calibrating how to balance the favors it hands out with the inevitable moral outrage those favors engender."

-- John Fund, The Wall Street Journal

See the column below for a hard-hitting, unconventional perspective on the AIG Debacle. Whenever Obama's socialist policies began to receive public "blowback," he goes in search of another scapegoat. "The economy is collapsing? In that case, let's go after . . . Rush Limbaugh. "The people hate our economic policies? Hey, let's tie a can to AIG's tail." Don't be fooled, my friends.

Note: Please click on the Jim Tedisco for Congress link on the top of the sidebar to your right. Also, I hope you'll finish a new and unconventional site that Cindy Reidhead and I have just begun: http://the80percentsolution.typepad.com. It deals with exactly what the GOP must do to stop losing key elections. Please visit.

Tuesday, March 17, 2009


"Where there's smoke there's fire." (Anonymous) "But sometimes where there's smoke there's a smoke machine." Never, never underestimate the Obama Machine's ability to blow smoke -- or to pluck scapegoats out of a hat (remember Rush Limbaugh?)

My political buddy, Laureen, a nurse/manager from the Scranton/Wilkes-Barre area of PA says that the national uproar over the AIG bonuses is mainly a trick by the Obama Administration.

Her point is that the bonuses at issue (which were specifically developed and approved by Chris Dodd) are being used to deflect attention from a small detail: that Obama's lurch toward socialism is wrecking the country.

See, if they can make everyone angry at some minor players at AIG, we won't be nearly as angry at Barack and friends. Laureen's additional point might be that said bonuses represent less than 0.1% (one-tenth-of-one-percent) of the $170 billion that has gone to AIG. They want us fighting over nickels and dimes and ignorning the huge bags of cash changing hands.

Guess what? My friend Laureen is dead-solid-perfect in her assessment (which follows in boldfaced itaclics).

Sadly, Obama/Axelrod/Emmanuel set many traps, and we often fall into them. Forget AIG, please! It's the political equivalent of what Boy Scouts used to call a "snipe hunt."

Laureen pleads:

PLEASE stay focused. Don't let them [Obama and the media] DISTRACT YOU! You need to know that these were RETENTION BONUSES that were given because these people were being FIRED. And it was already WELL KNOWN that they were being given by Obama and Congress last YEAR!

This is just a DISTRACTION by obama because his popularity is diminishing and the tea parties are gaining strength. PLEASE don't fall for their tactics. You know as well as I do how they play the game.

These [bonus recipients] people are EMPLOYEES that are getting FIRED and in order to keep them on for an additional few months so they wouldn't quit, they were offered retention bonuses to help with the re-organization of their company...otherwise they would have just quit [and many of them are anyway].

Obama also has his e-mails going out to his supporters to try to get them to go door-to-door to promote his socialist agenda and he is trying to distract Americans from this fact , as well as his plans to spend another trillion dollars in stimulus. PLEASE stay focused on his agenda rather than his distraction techniques.

Please don't be offended by my email. I just want to make sure we remain on the same side. This is how they DIVIDE people.

Also, Look what they are doing to AIG [people]! I mean they are threatening to tax EMPLOYEE's money at 90%!!!!!!!!! That is what you call COMMUNISM in my opinion. They are THREATENING to create NEW LAWS to be able to TAX EMPLOYEES PAYCHECKS AT WHATEVER RATE THEY CHOOSE!!!!!

Welcome to Obamaland!

Let me add this to Laureen's points: Confiscating anyone's income -- whether it is 100 people or a million -- is obviously unconstitutional. The AIG bonus arrangement was approved by Congress at the behest of Chairman Dodd.

I've been getting some very minor blowback from people who buy the MSM spin on AIG. The simplest point remains that it's not constitutional (we still have one, don't we?) to seize people's income, especially when that income is authorized in a federal statute (and one buffed up by Chris Dodd!).

If somebody else's income can be confiscated, then why can't mine . . . or yours?

I'm still waiting to see even one of the thousands of Wall Streeters who contributed so much money to Obama being punished (Citigroup especially). I'm waiting . . . waiting . . . waiting.

Is it becoming clear why Wall Street contributed so much dough to Obama? Maybe they knew something we didn't about their upcoming "needs"? You betcha!

Monday, March 16, 2009

New Pro-Republican Site Launched

What's necessary for Republicans to win in 2010 and 2012? Simply put, we need to STOP ALIENATING LARGE VOTING BLOCS -- Blacks, Hispanics, young people, and women (especially single-women living in larger urban and suburban areas). If we send a message to voters that we want to be "the morality police," they're going to proclaim, "No thanks!" They don't want us to be intrusive forces in their lives. Below, you can read about a new site, "The 80% Solution," designed to help us -- Republicans -- put ourselves more in line with what 21st century voters want from their government. Please take a quick trip to our new web site: http://the80percentsolution.typepad.com/the_80_solution/ Comments there are always welcome.

Last weekend on this site I offered a solution (a partial one) the health care crisis. My approach on healthcare ultimately will cost trillions of dollars less than Obama's. It will also lead to better treatment for patients.

On my blogs, I avoid the "outrage of the day" approach favored by many web sites. Instead, my focus is on what's really going on in American politics. In other words, I concentrate on substance rather than rumors, fluff, and warmed over "headlines." My solution on health care is not something stolen from the WSJ or USA TODAY.

Overall, I want to offer you something on these blogs that you won't find anywhere else. (Tomorrow -- Wednesday -- I'll be offering solutions to the "education crisis." Sadly, Obama's solution is to spend lots more money without producing better outcomes. My solution is to spend less money but to produce striking, positive results. Please come back.) My other blog is at: http://draftpalin2012.blogspot.com.

Those people who think that winning elections somehow displays a lack of "principle" will be agitated by an important new blog site: "The 80% Solution." Groups that consistently lose elections soon find their principles have become politically irrelevant. The following is a short excerpt from the first column, which I hope you'll visit often.

80% Solution, Pro-Palin Groups

Cindy Reidhead, this site's developer, and I will be sending out some information this week about our new web site called "The 80% Solution." It's based on an important statement by Ronald Reagan: "The person who agrees with you 80 percent of the time is a friend and an ally - not a 20 percent traitor."

It will be pro-Sarah Palin but will not be "anti" other possible Republican candidates. It will solicit columns from bloggers who agree generally with the "80% Solution," as well as from some national writers, such as Elaine Lafferty, Tammy Bruce, and others.

The site will take a dim view of those who practice "single-issue" politics or demand ideological rigidity from candidates. People who advocate "circular firing squads," including those enamored of the destructive term "RINO," will not feel comfortable at "80%." The site will have pieces from people who identify themselves as conservative, moderate, or liberal, as well as pro-choice and pro-life. People who are pro-Obama should stay away

Here's the link:


Saturday, March 14, 2009

Healthcare: Obama Fails, Maloney Succeeds!

"Is this the face that launched a thousand ships and burnt the topless towers of Ilium?" No, that was Shakespeare's Helen of Troy. It is, however, the man who solved America's health care crisis -- see below. (P.S. The beard is now gone.)

Is Obama really a socialist? Yes, he really -- really, really -- is.

He wants to "redistribute the wealth," as he told Joe the Plumber (Wurzelbacher). Also, he wants government to play a dominant role in the banking industry, health care, education, and energy. Moreover, he wants to send out hundreds of billion in "tax cuts" to people who don't pay federal income taxes. If that isn't the illustration of a socialist, what is? Of course, socialism is not about solving society's problems. It's about sending other people's money to individuals who will reward you with their votes.

Why don't our beloved Republicans -- including the increasingly clueless John McCain -- put it just that simply? Why don't they explain in 50-100 words or less why Obama is proposing socialism that will strange the private enterprise system? And why don't they then use another 50-100 words or so to explain to the American people why Obama's initiatives will not work? Finally, why don't use yet another 50-100 words or so to give Americans some compelling alternatives. It would add up -- max-- to 300 words.

Why the emphasis on 50-100 words, about the amount that would fit comfortably on a five-by-eight card? Frankly, because Americans are busy people. They aren'tt going to give politicians much time to make their case. Nor should they. American writer Henry David Thoreau had as his motto "simply, simplify, simplify." We must heed those, well, simple words.

Today, I'm going to use health care as an example. Obama has "set aside" $684 billion for his health care plan. How he arrived at that number -- why not $685 billion? -- we aren't told. We also haven't beeb informed what it will be used for. In other words, it sounds a whole lot like the original "TARP," with its $700 billion urgently needed for . . . something or other.

On health care, I used to make a tongue-in-cheek comment: "If we put Wal-Mart in charge of American health care, costs would go down . . . and service would go up." Well, Wal-Mart has been in the health care business for a while. It now offers some 400 generic (prescription) drugs for $4 each.

A number of other drug providers, including Target and Giant Eagle, a food and pharmacy concern in my area, have followed suit. In fact, Giant Eagle was giving away certain anti-infection drugs (generic penicilin) for . . . free.

In fact, mail order houses, like the one my wife and I use, have followed suit by making ALL generics available for zero co-payment. That saves my wife and me approximately $900 a year -- and strikes a major blow for keeping the nation's health costs down.

When it comes to health care -- and pharmaceuticals are a big part of it -- you really can't do much better than free. Of course, Wal-Mart also offers vision care and glasses at super-competitive prices. Thus, right after you're buying groceries at the best prices in town, you can stop by conveniently and pick out a new pair of spectacles.

Wal-Mart has also come up with a new cost-cutting, service-enhancing program. At a growing number of locations, it offer "virtual care" (using web cams). A man or woman comes in and is greeted by a para-medic, who excels at things like popping thermometers in their mouths and taking their blood pressure.

The patient and paramedic are on video, seen by a doctor who's also visible. The physician monitors the actions of the paramedic, asks relevant questions, makes diagnoses, and prescribes medications. The doc could do it from home in his shorts if he so desired.

The "virtual physician" visits cost $59. That's $16 or more less than in my relatively low-cost area (western Pennsylvania). I'll told by my friend in Staten Island that regular doctor's office visits there can exceed $150. That's $91-plus more than Wal-Mart is charging.

Do I hear the words, "Wal-Mart, go nationwide?"

What's going on . . . and not just at Wal-Mart? What we're seeing (with generic drugs and "virtual" physician care) is . . . innovation . . . and competition. The latter is something which has been largely lacking in the health care business for a long time.

What are Obama's plans for competition, which is so essential to driving down costs and increasing the quality of care? Surely you jest. Obama has plans to spend a huge amount of money on something or other -- after which we fear "the health problem" will be no closer to a solution.

Under the Obama Plan, in fact, the main issue confronting sick people will be which happens first: either they get to see the doctor . . . or the line is too long, and they die.

Thus, my Republican friends, my solution remains: to put Wal-Mart (or at least its business model) in charge of health care. And this time I'm not saying that tongue-in-cheek. If we go in that direction, Barack Obama may just be able to return the $684 billion to grateful taxpayers, who will then go spend it on houses, cars, and vacations, thus ending the recession.

Is solving the health crisis really this easy (well, almost this easy)? As America's favorite female Governor -- Sarah the Magnificent -- would say, "You betcha!" As my favorite poet -- well, okay, I'm him -- says, "Life, friends, is simple." (Unfortunately, politics is anything but . . . .)

On Monday? I put back on my Superman cape . . . and solve the education problem . . . again, in a low-cost, high-impact, pain-free way. I hope everyone in Washington, DC, is paying attention for a change.

Friday, March 13, 2009

Why Obama is a Socialist

On Saturday and Sunday, I'll be writing about why Obama is a socialist -- and what we can do about it. In the meantime, I hope you'll scroll down to yesterday's column about John McCain -- God willing, the last piece I'll ever write about one of history's worst presidential candidates. McCain proved that a candidate that seems old, tired, and confused doesn't win many elections. The best thing he did was to name Gov. Sarah Palin as his running mate. The worst thing he did was to lack even one clue about how to use her to maximum benefit.

Thursday, March 12, 2009

John McCain: Naive, Lousy Campaigner

"She is the CHANGE . . . He just talks about."

Yes, John McCain spent 5 1/2 years in the "Hanoi Hilton," but somehow he never fully understood Sarah Palin's toughness, indomitable spirit, and loyalty to , , , him. In all his years as a Washington Insider, he apparently had never met anyone quite like her.

John McCain is now speaking out against the Obama Omnibus Spending Bill, but his words demonstrate the same naivete that has characterized him for decades. In recent days, he's sent a new fundraising letter, which is what he did best in his campaign. In those days, I contributed approximately $500 to McCain and organizations backing him. In gratitude, I guess, the McCain Campaign sent me approximately 50 fundraising appeals.

For my contributions, I got two pictures of Cindy and John. She looked great; he looked old tired, and generally clueless.

Don't get me wrong: I love John McCain as a man and revere his service as an American hero, but the fact that he now is surprised by Obama's actions -- ones The Anointed One has engaged in his entire poitical career -- establishes that John is hopelessly naive. Of course, he won't go so far as to call Obama a "socialist." He wouldn't do so if BHO started wearing whiteface, donning a Karl Marx wig, and carrying around a copy of "The Communist Manifesto."

John will go to his grave disbelieving that "going across the aisle" isn't necessarily a good thing. In practice, it's a one-way street, with Democrats -- the daffy Joe Lieberman doesn't count -- never doing any such thing. John continues to talk of Joe Biden as his "friend," although Biden portrayed McCain as erratic and even dangerous during the campaign. That doesn't seem to have registered with John, alas. Clearly, he has very low standards when it comes to choosing friends.

When McCain staffers like Mark Salter (and, apparently, John's daughter, Meghan) came out with nasty and made-up rumors about Sarah Palin, it demonstrated that, for all his life experience, McCain isn't a good judge of character. John adores Meghan -- even though she generally deserves a spanking and a sharply reduced allowance.

For months, Gov. Palin ferociously and consistently defended Senator McCain. However, when he had opportunities to reciprocate and defend Sarah, he decided to go on "Letterman" instead. The general hostility in McCain quarters for the heroic Gov. Palin was that she drew huge crowds . . . while McCain couldn't draw flies if he was buried up to his head in a landfill.

He has chronically exaggerated the character of Barack Obama. When John told the woman in Wisconsin that we "have nothing to fear from an Obama presidency," he was -- as we've learned -- just plain wrong. People fear Obama because he has greater allegiance to the Democratic Party and its electability than to his country. Hey, he's from Chicago, right?

In the primary season, McCain regularly said that he "would rather lose the presidency than lose a war [in Iraq]." With his dismal, lackluster campaign he apparently succeeded in losing both.

I'll always believe that if Sen. McCain had run a more forceful campaign, a few GOP Senators might have come through with victories. Perhaps there would have been enough to defeat the omnibus bill that now concerns him.

Instead, he chose to wage a "gentleman's campaign," while his opponents trashed him and his V-P choice at every opportunity. He never knew what hit him. He smiled a lot, almost oblivious to the political thrashing he was receiving. When he lost -- badly -- he refused to let Gov. Palin speak to the nation, perhaps fearful she would upstage him one last time.

And oh, by the way, no more requests for money, John. I'm giving it all to your former running mate.

Online Survey Gives Obama "F"

MSNBC, also known as "the National Barack Channel," is conducting a survey where people get to give The Anointed One a letter grade. As for 2 p.m. ET on Thursday, 60% of the 212,000-plus people who had voted gave Obama either a D or an F. My friend Jacquerie of WAMToday (http://wam08.org/) sent me the following information.

Hi, Know you're great at spreading things around. Pass this on please:

MSNBC is conducting a poll of voters: What grade you would give the new President? To participate and see results go here:


Jacquerie's Comment: WND reported Obama at a 60% F score on March 11. His score has risen on March 12 to 27% A and 51% F.

Did he do something right yesterday of which we were not informed?

Steve's disclaimer: I gave the man an "F." Why? Because that was the lowest grade allowed. What about the people who are giving him an "A?" There's a persistent rumor that almost all of them are either descendants of Karl Marx or supporters of Hugo Chavez.

Tuesday, March 10, 2009

Is Obama Our Era's FDR?

"The Great Depression wasn't too bad -- as long as you had a job." (Unforunately, at any given time in the 1930s, one-out-of-four to one-out-of-five workers didn't have jobs.)

In his endless efforts at "experimentation," Franklin Delano Roosevelt did many bad things, including his "court-packing" efforts to manipulate the judiciary. Barack Obama seems destined to recapitulate all Roosevelt's worst initiatives.

Redistribution of wealth, which Obama told Joe the Plumber (Wurzelbacher) he supported, is the essence of socialism. FDR was a fervent redistributor. Why? He had discovered poorer people were more likely to vote Democratic.

Government control is another key aspect of the socialist agenda. However, the key component for socialist-inclined politicians, from FDR to Obama, is choosing what groups to favor in order to win elections.

In Roosevelt's era, the favored groups were: (1) recipients of government welfare (called "relief" in those days); (2) trade unions inclined to vote Democratic; (3) consumers of products (as opposed to producers); (4) college-age young people and high school students; and (5) Black citizens. Roosevelt's own version of an "enemies list" included: big companies; employers generally and the wealthy. Obama's "list" would be roughly the same.

FDR's National Recovery Administration (NRA) was a make-work organization designed to reduce unemployment, which, except for very brief periods, it didn't accomplish. Beyond that, it created ten thousand pages of regulations to exert government control over nearly every aspect of the economy.

To paraphrase Amity Shlaes (author of The Forgotten Man), under the NRA, government bureaucrats had the authority to curtail the production of goods (supply) in order to drive up prices. Of course, with so many people impoverished by the Depression, higher prices were not an unmixed blessing.

Also, NRA regulations determined the precise components in macaroni. Moreover, the organization determined what tailors could and could not sew. In the poultry industry, regulations barred consumers from choosing what chickens they wanted to buy.

An institution like the NRA illustrated the main assumptions of socialism: that government bureaucrats know better than producers or consumers. It emphasized consumers because there are more of them -- as voters -- than there are producers

Monday, March 9, 2009

NY Times: Is Obama Socialist?

The NY Times recently did the unthinkable: it asked Barack Obama if he was a "socialist." Obama bridled at the question. Is he a socialist? Of course he is. The man has surrounded himself with Marxists, including his childhood mentor "Frank" (Frank Moore) and self-described "communist" (small "c') Bill Ayers. Obama's political hero, Franklin Delano Roosevelt, was surrounded by socialists and a few Stalin-adoring Communists.

Roosevelt believed that the government was better able to create jobs -- and "redistribute wealth" -- than private industry. That belief dovetailed with FDR's desire to win perpetual re-election -- a desire Obama obviously shares. FDR, like Obama, had a marvelous gift-of-gab. Unfortunately, in both cases, rhetorical skills have functioned as a substitute for real accomplishments. [Note: If you visit this blog with any frequency, please join the followers group, which you can go by clicking on the sidebar -- top-right. Thanks.]

What went wrong during both the Great Depression and the first decade of the 21st century?

Consider Chicago-based electric power magnate Samuel Insull, who became fabulously wealthy -- on paper -- during the boom times of the 1920s. A few years after the Depression commenced, Insull had lost his fortune, largely because of (1) deflation; (2) FDR's hatred of private power companies. Insull had believed in the future of electric power, that demand for it would keep on growing – and over the long term he was right.

However, Insull's philosophy of growth was based on leverage -- on borrowing money. He once said, “Take on debt as fast as you can.” Unfortunately, when a businessperson – or a homeowner – does that, he or she had better hope that the market never takes an extended dive. Of course, such a sustained downturn is exactly what happened in the 1930s – and what we’re experiencing now. As long as markets keep going up and up, every investor looks like a genius.

In our time, the big commercial banks and the big investment houses took on massive amounts of debts, assuming that sustained growth would allow them to pay it back. They never contemplated a period of deflation.

Consider Lehman Brothers, a once seemingly invincible merchant bank, which was one of the first Wall Street dominoes to fall. Previously, it had been extremely profitable – on paper. However, it took on an almost unimaginable load of debt. In fact, its ratio of debt to capital was 30 to 1. When all of a sudden, its debts came due – in a time of deflation – it was unable to pay them. And its days as an independent business were over.

Although its actions apparently weren't criminal – just stupid and selfish -- Lehman's approach was somewhat similar to Bernard Madoff’s. Unlike Lehman, Madoff had an all-out Ponzi scheme, where he paid off yesterday's investors with new investors’ money – taking out enough cash to get rich himself. As new investors became scarcer, Madoff was no long taking in enough in to pay off the older investors. At that point, he may have had nightmares of wearing not $6,000 business attire, but rather an orange jump suit.

In both the 1920s and our own recent times, the approach was to borrow, borrow, and then borrow some more. The assumption was that markets – as well as housing prices – would continue to go up almost forever. When they ceased going up, the mighty fell – fast and hard.

As regular readers have seen, MotleyFool.com had a piece called “Who Should Go to Jail?”

That's a harder question than it seems. Should the people formerly known as “The Smartest Guys on Wall Street” end up in the hoosegow? That depends on whether being extremely stupid qualifies as a crime. Should the man down the street go to jail, the one who fibbed about his income so he could buy a million dollar house because he “knew” it would go to a million-five and he would then sell it at a big profit? (Note: That house is now worth, say, about $700,000 and change . . . and the foreclosure notices have started arriving.)

I used to have people look at me with straight faces and say, “Look, they’re not making any more land, right? So, housing prices are never going to go down, right? Or at least they won't go down for a long period of time, right?" Well, no, wrong!

Remember, before “toxic assets” were known as, well, toxic assets, a lot of them were seen as “good investments.” Who knew what they were really worth was -- theoretically -- a good question, but in practice, nobody cared.

Everybody was buying, right? Not anymore. “Those were the days my friend; we thought they’d never end.” Another saying has prevailed: "All good things come to an end."

[More to follow tomorrow on what FDR did that hurt the economy -- and how Obama is doing the same things in our time.]

Sunday, March 8, 2009

Who Caused the Economic Crisis?

Urkel Hussein celebrates his latest economic achievements.

Who caused the economic crisis that now grips our nation? The correct answer, one we really don't want to hear, is: We did. He (The Anointed One featured in the graphics above) also did his part.
Later today (Monday), I'll be writing the first of several pieces about similarities between the current economic downturn and the 1930s. If your parents or grandparents were admirers of Franklin D. Roosevelt, I regret to inform you that most of the things they told you about FDR were false. In fact, he probably did more harm than good. Scroll down to the bottom to see an example. I hope you'll return late this afternoon or this evening to see the new column.

How? By taking on (high) levels of debt that we're now finding harder and harder to pay off. We believed that something called "inflation" would allow us to pay off debts with ever-cheaper dollars. Instead, we have something called "deflation," which is having just the opposite effect, making dollars harder and harder to come by. There's no more inflation to bail you out.

On the political front, the short -- but incomplete -- answer to who caused the problem is: Bill Clinton, Barney Frank, Chris Dodd, and various other Democrats, as well as the self-aggrandizing people at Fannie Mae and Freddie Mac. All of the above insisted that lenders offer loans to people who now can't afford them.

The longer answer is that the crisis traces back to all those people -- in the public, in the government, and in the urban caverns of Wall Street -- who engaged in, or encouraged, very risky borrowing.

One such individual is a man named Tim Geithner. In the run-up to the crisis, he headed the New York branch of the Federal Reserve. He strove to keep interest rates at extremely low levels, which of course encouraged people -- from Main Street individuals to Wall Street speculators -- to go into heavy debt. Of course, low interest levels are fine, but only as long as borrowers don't over-use them.

There used to be an old nonsense game that college guys used to play on spring break drives to Florida. Here's one question: "On the stupidity scale, what's dumber -- a doorknob or a doorbell?" It turns out that the correct answer to that question is: Tim Geithner, the Treasury Secretary who now heads the IRS but didn't pay his taxes.

Let's be clear: It's certainly okay to borrow modest amounts of money, as long as the recipient has a reasonable chance of paying back the loan. However, if the person doing the borrowing can't survive an economic downturn, even a severe one, big loans are a bad idea.

As people try to put their arms around our dismal economic situation, they should start reading an important financial web site: MotleyFool.com. The writers there avoid financial jargon and "WallStreetspeak."

One MotleyFool piece I urge everyone to read is Matt Koppenheffer's provocatively titled essay: "Who Should Go to Jail?" You can find it at the following link: http://www.fool.com/investing/dividends-income/2009/03/06/who-should-go-to-jail.aspx?source=iflfollnk0000001

As you read the following material from Koppenheffer's piece, think of a line from an old song: "Those were the days my friend; we thought they'd never end." Of course, everything comes to an end.

Relatedly, as Sir Isaac Newton taught the world long ago, "What goes up must (eventually) come down." That's as true of economic rises and falls as it is of roller-coaster rides.

But who should we punish for economic malfeasance? In the words of Koppenheffer: "As the nation’s collective temper flares, we’re all beginning to consider tossing the people responsible for today's financial mess in the slammer and throwing away -- no, melting -- the key. And with our economy in disarray and major banks like Citigroup (NYSE: C) and Bank of America (NYSE: BAC) potentially on the brink of collapse, it's tough to fight that sentiment. . . .
"Sometimes it just doesn't matter what your IQ is, what school you went to, or what position you hold -- idiocy can creep up and slide into bed with you. Even more irresistible is an idiocy that is supported by seemingly everyone around you. 'What? Home prices never go down?' That sounds fishy, but everyone else seems to think it's true.

"Remember when your mother asked whether you'd jump off a bridge if everyone else did it? Some people, even smart ones, have been jumping off that bridge their entire lives."

Koppenheffer's point is that, in financial matters, there are some crooks -- like Bernie Madoff -- and many fools, a group that includes nearly all of us (including me). As a nation, we jumped off bridges -- by making risky investments and buying houses that are now worth less than we ever imagined.

Can Obama bail us out? Surely you jest. He isn't going to hand over his own fortune to the American people. Remember, he's living rent free in a $100 million home. The only one who can bail us out is . . . us, the taxpayers, and, of course, the foreign lenders from whom we're borrowing trillions. Somehow it doesn't seem likely that a problem generated by over-borrowing is going to be solved by . . . massive borrowing.

Why oh why did we buy a $500,000 house when we could only afford one for $400,000 or less? We did so because the "smart people" (now known as the "dumb people") told us it was a good investment. After all, in a few years wouldn't our half-million house be worth $600,000 or $700,000?

Right now, however, our $500,000 home may be worth $390,000 -- or less. The notion that home prices would not -- could not -- go down turned out to be a foolish notion. The "housing market" ended up pricing itself out of the market.

On that $500,000 home, suppose you put down $100,000 -- one-fifth of the price. Then, suppose, you took out a home equity loan (perhaps to pay off credit card debt) of $60,000. In that case, you owe a total of $460,000 on a home that's worth $390,000 (minus the real estate commission of more than $20,000). You are out a ton of money.

With economics, the word "never" (as in, "House prices will never go down") doesn't apply. It doesn't apply if you're Citigroup, or Merrill-Lynch, or AIG. It also doesn't apply if you're you, sitting nervously in a home that you can no longer afford. You're up the creek, and your creditors are holding the "paddle."

(Note: I'll be writing the rest of the week on the economy, with emphasis on what the Obama Administration should do -- but probably won't.]

More from MotleyFool.com: "My guess is that a heck of a lot of the problems that we're facing today were born of people doing dumb things. Building a financial model that assumes housing prices will never fall? Dumb. Buying a $500,000 house with 2% down and a three-year interest-only loan? Dumb. Giving a mortgage loan to somebody putting nothing down? Yup, that's dumb too."
Did FDR really lift America out of the Depression. No, he didn't.
Barack Obama talks regularly about the inspiration he receives from the presidency of Franklin Delano Roosevelt. However, when it comes to bringing the country out of an economic crisis, FDR is a very poor model. He succeeded at getting large segments of the population to revere him. He failed at solving the country's economic disaster. Consider . . .

In November , 1933, a year after FDR's election, unemployment in the U.S. was above 23%, nearly one-in-four workers. The Dow Jones Industrial average, which had gone over 380 in fall, 1929, was at a miserable 90.

What about November, 1934, two years after Roosevelt's election? Unemployment remained exactly where it had been a year earlier -- at 23%, and the Dow had moved us a measly three points -- to 93.

By July, 1935, two-and-a-half years after his election, FDR had barely put a dent in unemployment, which remained about 21%. The Dow had moved up some -- to 119 -- but it was still at a level less than one-third the high in 1929.

Frankly, much of what we learned about FDR from old family members -- and from our history books -- was incorrect. FDR remained a dashing and popular figure, but the Depression lasted all the way through Roosevelt's first two terms.